Market segmentation is a very important concept for small to mid sized companies. It allows a company to create appropriate focus so as to have the potential of achieving a dominant position even in an environment where larger companies with greater resources compete. The process of selecting and defining segments is a creative one. It is not about choosing right or wrong segments, but rather about identifying appropriate ones.
Appropriate segments should fulfill two primary criteria. They should be useful for analysis - meaning that individual segments have distinctive characteristics. For example, a characteristic that might distinguish two segments would be specialty versus commodity buying behavior. Appropriate segments should also be helpful in decision-making. This means that the segments should be divisions upon which strategic decisions such as Expand, Maintain, Contract, Milk or Withdraw can be made. Finally, it is very important that a company review its segmentation on an annual basis to see if any changes should be made.
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